Japan's Machinery Orders Plunge

Japan said that a key gauge of corporate capital spending plunged at a rate not seen for almost two decades in July, overshadowing a small upward revision to second-quarter economic growth. Private-sector core machinery orders slumped 16.7% in July, the steepest fall since the government began compiling the data in April 1987, the Cabinet Office said Sept. 11.

Machinery orders placed by the manufacturing sector alone in July slumped 18.7% month-on-month. Spending by companies on plant and equipment has been playing a key role in Japan's economic recovery and the figures are closely watched by investors, although orders tend to fluctuate sharply from month-to-month. "While it is premature to say that the bigger-than-expected fall in July is hard evidence that solid capital spending is falling apart, we can say that Japanese firms are now faced with increased challenges to their boosting expenditure," said Daiwa Institute of Research senior economist Junichi Makino.

Orders placed by non-manufacturers fell 15.8% and public-sector orders fell 1.9%. Total orders were down 16% on the month. "The reason for the sharp drop in July was because machinery orders jumped significantly in the previous month," a Cabinet Office official told reporters. For the three months to September, core machinery orders are seen rising 4.9% from the previous quarter. Year-on-year, core private orders, which exclude particularly volatile demand from electric utilities and for ships, were down 1.2%.

Concern over the figures undercut any optimism about an earlier report showing that Japan's economy grew by 1% on an annualized basis in the three months to June, up from an initial estimate of 0.8%. Quarter-on-quarter, gross domestic product (GDP) expanded by 0.2%, unchanged from the earlier estimate, the Cabinet Office said.

Copyright Agence France-Presse, 2006

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